Editorial: City shouldn’t be too quick to tap rainy day fund

Local governments looking at depleting rainy day funds or instituting knee-jerk tax hikes to help cover sales tax and other pandemic-related revenue losses are setting themselves up for calamity. We’re only three months into this historical situation and, frankly, we do not know if the worst economic damage is yet to come or if it is slowly fading behind us. We must prepare as if the bleakest days are ahead.

The state is planning ahead. In March, Gov. Bill Lee said Tennessee’s rainy day fund would get an unprecedented $350 million contribution to prepare for the future. State Finance and Administration Commissioner Stuart McWhorter said, “Clearly, we are in a time of preparedness and a time of many unknowns.”

Kingsport’s $16 million rainy day fund could easily cover the projected $5.5 million in revenue deficits in the fiscal year that begins July 1. The city is estimating a 2% drop in property tax collections in the next fiscal year, an 8% drop in sales tax collections, a 25% loss in motel/hotel tax receipts, and a 31% drop in fines and forfeitures.

To help balance the proposed 2020-2021 budget, Kingsport has proposed a number of cuts, even to its special programs budget by nearly 22%. This means that more than two dozen organizations within the city, such as the Arts Guild, NETWORKS, the Theater Guild and a number of Chamber of Commerce programs, will also face cuts.

In total, the city is cutting expenses by $3.9 million, leaving an estimated $1.6 million gap between those cuts and projected revenue losses of $5.5 million. To close that gap, the city proposes to tap gently into its rainy day fund. The city finds that income from property taxes is stable, but with record unemployment likely through the rest of this calendar year and into 2021, that will not remain the case. Nor can many residents out of work sustain increases in sales and property taxes.

The impact of the pandemic going forward is difficult to predict. The city is making educated guesses, but what if the expected second wave is severe, particularly given the reopening of the economy, which will increase infection? What if businesses close permanently? What if unemployment continues to rise?

Those are a lot of difficult “ifs” City Manager Chris McCartt must consider as he, staff and the Board of Mayor and Aldermen look at the remainder of this fiscal year and into the next.

“We will look again at this budget in September ... to see what our revenues over expenses are and make changes as we see fit. We’ll do that again in January and in March,” McCartt said. “We hope it’s a budget where we can come back and make positive adjustments throughout the fiscal year.”

We encourage the city to look harder to close the projected $1.6 million gap in its next fiscal budget without planning to use any of its rainy day fund until that clearer picture emerges. The city may find that it needs every bit of that cushion.